Analysts pegs positive view on Sasbadi’s long term prospects
KUCHING: Sasbadi Holdings Bhd’s (Sasbadi) first nine months of the financial year 2017 (9MFY17) performance was unexciting but analysts are more positive on its long term prospects.
AllianceDBS Research Sdn Bhd (AllianceDBS Research) pegged a more positive stance on the stock than consensus.
It said, “Sasbadi has become a high conviction ‘buy’, given that valuation has turned attractive after its relative share price underperformance, and we believe that earnings growth is poised to pick up in FY18 following management’s recent actions in streamlining cost and enhancing its revenue growth trajectory.”
Nevertheless, it noted that 9MFY17 has so far been an unexciting year for Sasbadi given that although the group operates in a relatively resilient education sector.
n the back of weak consumer sentiments dragging its top-line growth, operating expenses are expected to increase more than 15 per cent year- on-year ( y- o-y) mainly due to start- up costs for its network marketing business, coupled with higher expenses consolidated due to its past few acquisitions such as United Publishing House Sdn Bhd and Distinct Motion Sdn Bhd.
“To recap, the group’s 3QFY17 earnings dropped by 33 per cent y- o-y to RM2.6 million due to 3.1 per cent y- o-y reduction in 3QFY17 revenue, and higher operating expenses mainly due to consolidation of the United Publishing Group’s results and higher interest expenses.
“This brings its 9MFY17 earnings to RM12.3 million, representing a marginal y-o-y decline (down two per cent). It also accounts for only 60 per cent of our full-year earnings forecast of RM21 million, before revision,” it explained.
“Although management had tried to catch up with the earnings shortfall in the subsequent months, we believe that the gap is too wide to close as 4Q (end-August) is seasonally a weak quarter. We expect the group to record a profit of RM2.1 million in 4QFY17, compared to a core loss of RM0.2 million in 4QFY16.
“This will bring its FY17 fullyear earnings to RM16.4 million, implying 39 per cent y- o-y growth in core earnings.
“Having said that, this is unlikely to lift investors’ sentiment given street expectation of a much improved earnings trajectory from new acquisitions which have been hampered by higher operating costs while organic growth of existing print business has been weak,” it said.
While the group’s FY17 might seem sluggish, AllianceDBS Research pointed out that the group’s strategies include streamlining its operations and cross leveraging its core brands, enhancing its digital and physical publications, as well as partnerships digital platforms to improve its products.
Coupled with the gradual recovery in consumer sentiments, it believed that Sasbadi’s conventional publication business would be back on a growth trajectory in FY18.
It also highlighted that other than its organic growth from existing publishing business and earnings-accretive M&A, network marketing could serve as another key growth driver for Sasbadi going forward.